Auditors have warned of Philly School District accounting problems since 1987

State auditors warned of financial accountability problems at the Philadelphia School District in periodic audits since at least 1987, foreshadowing some of the issues that underpin the crisis in the district as it opens its doors to students Monday.

The district is running a $300 million deficit this year and was only able to ensure it would open its doors on time thanks to an emergency loan secured by the city of Philadelphia in August. The district is receiving more than $1.3 billion in state and federal aid this year.

But the district has had problems tracking students, accounting for state dollars and keeping accurate finances for much of the past two decades, according to audits conducted by the state auditor general's office. The auditor general is required to audit all 500 school districts in Pennsylvania at least once every four years.

"The district was unable to provide us with the documentation necessary to verify that it correctly reported its membership and attendance data to the Department of Education," wrote auditors in the most recent review of the Philadelphia School District, which took place in 2011. "A district's failure to accurately maintain and report this data calls into question the legitimacy and appropriateness of the bulk of its state taxpayer funding."

The auditors said they reported similar problems in each of the five previous audits of the Philadelphia School District. It was impossible to determine if the district received appropriate state subsidies for more than decade, they wrote.

"These findings are particularly disturbing because in those ten years the district has received approximately $9.1 billion of state dollars," they wrote.

Repeated phone calls and emails to the school district and the state-run School Reform Commission, which was created to address some of the problems in the district, went unreturned over the past week.

But in 2011, in an official response to the state audit, district officials wrote that the district would pursue steps to address the problems identified in the report.

The district said it had new procedures in place to better track student attendance and state spending, beginning in the 2010-11 school year. Officials also tried to downplay the effect of student enrollment on state subsidies, claiming the inaccurate counts affected only 3 percent of state spending in the district.

In a second response, the auditors expressed skepticism that the district would get its fiscal house in order.

"It is imperative for us to emphasize that we have been citing the district since 1987 for inaccurate collection and reporting of child accounting data," the auditors wrote. "The commonwealth's taxpayers deserve to know that every dollar is accurately accounted for, and, to that end, no error rate is acceptable."

Federal auditors encountered some of the same problems.

In 2010, the U.S. Department of Education's Inspector General recommended that the Philadelphia School District be labeled a "high risk grantee" after a federal audit found the district did not maintain documentation for training and professional development expenditures.

State auditors said that finding highlighted the "pervasiveness of the district's recordkeeping issues."

But the district has continued to get more state funding, even while the financial situation at the district has spiraled downward in recent years.

The accountability problems at the school district were compounded by the state's decision to cut education funding in the 2009-10 and 2010-11 state budgets, using federal stimulus funds to fill the gap. When the stimulus dollars expired in 2011, the state did not increasing funding to make up the difference.

In trying to deal with the funding mess, the school district laid off about 3,800 employees during the summer and closed 24 school buildings at the recommendation of the School Reform Commission, which cited the district's declining student enrollment for the decision.

"By not taking action now, we would continue the deterioration of our public schools to the point where they become obsolete to the children that we have sworn to serve," said Pedro Ramos, chairman of the School Reform Commission, in statement at the time.

Enrollment in the district totals about 190,000 this year, but overall enrollment is down 11 percent since 2008 and 29 percent since 2001.

This year, Philadelphia is slated to receive nearly $984 million in basic education subsidies.

That's a significant increase in only the past few years. As recently as the 2008-09 budget year, the district received $932 million.

The district is counting on the $50 million loan from the city and another $45 million grant from the state to allow it to continue operating through the end of the year.

But the $50 million loan is tied up in a political struggle between the mayor and the city council, while the $45 million state grant also is on hold for now.

Negotiations, meanwhile, continue between the district and its main teachers union, the Philadelphia Federation of Teachers. State officials have said they will not provide additional financial assistance to the school district unless the teachers' union agrees to about $133 million in concessions.

But things will only get worse, according to two reports that eye the future of the district.

A district report from August 2012 projects a cumulative deficit of $1.1 billion through 2017, and a study of the district's pension obligations indicates the total cost of retiree payments will climb from $73 million this year to $349 million by 2020.

Contact Eric Boehm at Eric@PAIndependent.com. Follow @PAIndependent on Twitter for more.

The Pennsylvania Independent is a public interest journalism project dedicated to promoting open, transparent, and accountable state government by reporting on the activities of agencies, bureaucracies, and politicians in the Commonwealth of Pennsylvania. It is funded by the Franklin Center for Government and Public Integrity, a libertarian nonprofit organization.